U.S. Congress may face another debt-limit showdown in 2013

WASHINGTON Sun Oct 28, 2012 2:39pm EDT

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WASHINGTON (Reuters) - A U.S. debt-ceiling increase could be headed for a Wall Street-rattling showdown in 2013 if Congress, as expected, shuns a quick and easy fix at the end of this year in favor of another round of last-minute brinkmanship.

Regardless of who wins the November 6 elections, many congressional aides and Capitol Hill observers are predicting that lawmakers will go right up to the deadline - probably around mid-February or early March - before increasing the $16.4 trillion limit on borrowing that is nearly exhausted.

While no one is certain of another 11th-hour fight in February or March, no one is ruling it out.

Without the bigger government credit card, the U.S. Treasury Department no longer would be able to finance government operations, forcing widespread shutdowns and default on debt payments to creditors from China to England.

It is a scenario almost exactly like the summer of 2011 when investors, credit-rating agencies and capitals around the world watched with alarm as Washington went to the brink before reaching a debt-limit and deficit-reduction deal.

Another such showdown is "always a possibility," a Republican staffer said, even though there will be an opportunity to head it off early in a post-election "lame-duck" session of Congress set to begin on November 13.

That session will be focused mainly on trying to clean up another big mess Congress has created over a series of imminent tax increases and spending cuts - known as the "fiscal cliff" - that could throw the U.S. economy back into recession if allowed to happen.

"A lot of people (in Congress) don't want it (the debt-limit increase) to be part of the lame duck," the aide said. "For many people, the situation is complicated enough as it is" with the budget and tax decisions. "So why not take one component out of the equation," the aide added.

A Senate Republican leadership aide, who also asked not to be identified, flat out predicted, "You're just going to see a focus on tax cuts and spending cuts" - and not raising the debt limit - during the upcoming post-election session of Congress.

But even the main two fiscal-cliff problems - how to parcel out a new round of deep spending cuts and how to structure tax rates - are probably too daunting for Congress to fully deal with during the short, five-week post-election session.

As a result, they will have to be revisited next year, when Democratic President Barack Obama promises to negotiate a comprehensive deficit-reduction deal if he is re-elected. Last year, he and House of Representatives Speaker John Boehner, a Republican, nearly shook hands on a $4 trillion package of spending cuts and revenue increases.

Bruce Josten, the chief lobbyist for the U.S. Chamber of Commerce, told Reuters that since the debt limit is so closely tied to those other big decisions, they all ought to be addressed simultaneously, probably in 2013.

Does that set up another bruising fight over the debt limit? "Of course," Josten replied.

Just as in 2011, the ominous debt-limit deadline will not be the only one breathing down lawmakers' necks in the first quarter of 2013.

On March 31, Washington runs out of money to pay for nearly all government activities and will be searching for a deal to fund programs through September 30, 2013.

Members of Congress - gun shy of Tea Party protests against more spending and more borrowing - probably will need the hard reality of these twin deadlines to be forced to act, according to congressional aides and budget and tax specialists outside of government.

STRINGS ATTACHED

Technically, market analysts expect the debt limit to actually be reached December 31. But they predict that Treasury Department maneuvers will allow the government to continue operating safely until mid-February. Even with last year's scares, analysts do not think it is important for Congress to increase the limit before the end of the year.

"It would be nice not to go down to the drop-dead date, but with the way the process has evolved over the last 20 years, operating on auxiliary engines is standard practice now," said Lou Crandall, chief economist with Wrightson ICAP, referring to emergency steps the Treasury Department can take to briefly delay exhausting its borrowing limit.

Representative Chris Van Hollen, a member of the House Democratic leadership, told Reuters: "It would serve the country well if we could resolve that issue (raising the debt limit) sooner rather than later ... in the lame-duck session."

But political considerations are standing in the way.

If Republican presidential candidate Mitt Romney wins on November 6, Democrats likely would want to see the next debt-limit increase - always unpopular with voters - on the new president's watch rather than on Obama's, said a Senate Democratic aide.

If Obama is elected to a second term, he likely will have to deal with a House of Representatives still under Republican control. And Boehner repeatedly has warned he is not willing to let the debt limit rise without strings attached: For every dollar of higher borrowing authority, there would have to be at least one dollar of savings.

So for example, if Obama were to seek a $1 trillion debt limit increase Congress would have to find $1 trillion in spending cuts or tax increases under Boehner's rule. That is probably too ambitious for a lame-duck session that will last only five weeks or so.

One House aide, however, suggested that if Congress during the lame duck approved a "framework" for larger deficit reduction steps next year - with details to be worked out later - that might be enough to satisfy Boehner's demand.

(Editing by Fred Barbash and Eric Beech)

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Comments (9)
Progression wrote:
And 2014, 2015, 2016, 2017, and forever into the future until we get the budget balanced. This is the biggest issue facing America. You, your kids, and grand kids are going to have to pay for the mistakes of Bush and Obama. There will be no money for the US military, Social Security, Medicare, Education, Food Stamps, etc., if we do not get this under control. Neither candidate and neither party seems to care. Romney is better equiped to understand finace and what the government faces, but he talks about spending more money on military and tax cuts. I am completely finished with Republicans and Democrats. Both parties need eliminated, and we can start voting for candidates and not parties.

Oct 28, 2012 5:13pm EDT  --  Report as abuse
rossryan wrote:
Hmm. $16.4 Trillion debt limit having almost been reached…and the total US household worth as of 2009 was $54.2 Trillion. All they need to do is quadruple the size of the debt limit, and we will be devoid of any wealth in less than a decade.

But we will pay it all back during the good times, and the good times have to be right around the corner, right guys? There’s no way that the depression could continue for the next several years…

Oct 28, 2012 5:20pm EDT  --  Report as abuse
Harry079 wrote:
As of Otober 25, 2012 the debt subject to the limit was $16.158 trillion and the limit being $16.390.

That leaves about $232 billion before the limit is hit. The daily average is about $4 billion being added towards the limit or about $120 billion a month.

Without resorting to Magic Tricks there is no way to make it past the 1st of the year.

Oct 28, 2012 5:24pm EDT  --  Report as abuse
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